Markel Corporation (NYSE:MKL) released second-quarter 2016 results Tuesday after the market close. And as per usual, the specialty insurer didn't disappoint.
First, let's cover the headline numbers. Quarterly operating revenue increased 5.5% year over year, to roughly $1.376 billion, and translated to a 19.5% decline in net income per diluted share, to $5.41. Keeping in mind Markel doesn't typically offer specific quarterly guidance, analysts' consensus estimates called for Markel to achieve higher net income of $6.39 per share, and lower revenue of $1.37 billion.
To be fair, as I noted in my earnings preview earlier this week, Markel is a financial holding company. So a better way to measure its progress is by looking at growth in book value per share. As of June 30, 2016, Markel's book value per share was $603.13, up 7.5% from $561.23 at the end of 2015, and representing year-over-year growth of 8.7% from $554.97 at the end of last year's second quarter.
As Markel Executive Chairman Alan Kirshner said:
The second quarter of 2016 results continued to reflect strong performance from our underwriting, investing and Markel Ventures operations. We were pleased with our underwriting results which had minimal impact from the industrywide large loss events that occurred during the quarter. Our investment portfolio benefited from favorable movements in the debt and equity markets and our Markel Ventures operations reported another quarter of year over year growth in operating revenue, EBITDA and net income.
More specifically on the investment side of Markel's house, comprehensive income to shareholders was $209.9 million this quarter, compared to a comprehensive loss to shareholders of $132.9 million in the same year-ago period. Net investment income also increased 4.9% year over year, to just under $95 million, with growth driven primarily by higher bond income on Markel's fixed maturity portfolio thanks to increased holdings of fixed maturity securities.
Total invested assets were $19.2 billion at the end of the quarter, up from $18.5 billion at the end of last quarter. Within that, equity securities comprised $4.4 billion, or 23% of the total. That's flat from last quarter as a percentage of total invested assets, and continues to represent around 52% of total shareholders' equity. Markel has historically invested between 50% and 80% of shareholders' equity in securities.
Fixed maturities comprised around 54% of invested assets at the quarter's end, again roughly flat from last quarter, and short-term investments, cash, and cash equivalents made up the remaining 23%. Net unrealized gains (net of taxes) were $1.8 billion as of June 30, up from $1.7 billion last quarter and $1.5 billion at the end of 2015. To that end, Markel chief investment officer and co-CEO has a habit of holding high-quality equities for long periods of time without selling. In doing so, he ensures net unrealized investment gains can trend upward over the long term, allowing the magic of compounding to do its work while at the same time avoiding an unnecessary tax bill that would otherwise be incurred should he sell.
Next, Markel's insurance businesses continued to perform well, with a consolidated combined ratio of 93% for the quarter, meaning they earned $7 for every $100 in premiums they wrote. That included 94% from the U.S. insurance segment, 100% from international insurance, and 86% from reinsurance operations. This was also an improvement from Markel's consolidated combined ratio of 96% in last year's second quarter, with the favorable decrease driven by a lower current accident loss ratio and continued positive developments from prior years' loss reserves.
Gross premium volume also climbed 0.9% year over year, to roughly $1.28 billion, including a 3.1% increase in gross premiums from U.S. insurance, to $689.5 million, 4.2% growth from reinsurance, to $269.6 million, and a 5.8% decline from international insurance, to $318.6 million.
Finally, we can't forget the non-insurance portfolio of businesses operating under Markel Ventures. Operating revenue there increased 24.3% year over year, to $297.8 million, including 10.9% year-over-year growth in manufacturing business revenue, to $193.2 million, and 59.9% revenue growth at non-manufacturing businesses, to $104.6 million.
Meanwhile, Markel Ventures' net income to shareholders was roughly $22 million, compared to a net loss to shareholders of $2.6 million in last year's second quarter. Markel Ventures' earnings before interest, taxes, depreciation, and amortization (EBITDA) also nearly quadrupled over the same period, to $50.9 million.
Keep in mind, however, that last year's second quarter included a $17.6 million expenses recognized as a result of an increase in Markel's estimate of the contingent consideration obligation related to its acquisition of auto transport trailer maker Cottrell in 2014 -- though to its credit, Markel's more recent acquisition of IT consulting specialist CapTech helped play a role in driving Markel Ventures' growing revenue and expanding profitability. Markel made no additional acquisitions during the second quarter this year.
All told, this was another great quarter from Markel as it demonstrated broad strength across its investments, insurance, and Markel Ventures businesses. So even as the market might not reflect as much with shares trading near all-time highs right now, I think patient, long-term investors should be pleased with Markel today.